Question

If RBI lowers the Cash Reserve Ratio (CAR), then

1. supply of money in the economy may increase.
2. banks will increase interest rates.
3. exports will become cheaper.

Options

• I

• I, II

• I, Ill

• I, II, Ill

Answer 1

I

Explanation: The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with the Reserve bank of  India as a portion of their Net Demand and Time  Liabilities (NDTL). The objective of CRR is to ensure the liquidity and solvency of the Banks. The CRR is maintained fortnightly average basis. When CRR is  reduced, more funds are available to banks for deploying in other businesses because they need to  keep fewer amounts with RBI